Suppose That a Country Has an Inflation Rate of About

Multiple Choice

Suppose that a country has an inflation rate of about 5 percent per year and a real GDP growth rate of about 2 percent per year.What is the highest deficit the government can afford without raising the debt-to-income ratio?

A) about 2 percent of GDP
B) about 7 percent of GDP
C) about 9 percent of GDP
D) about 12 percent of GDP